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Monday, June 06, 2005

Oil StormSome films have a lasting impact beyond their entertainment value, while others intended to deliver a powerful message disappear without a trace. Arguably, "The China Syndrome" changed the way the US looks at nuclear power, though it's hard to separate that from the coincidental occurrence of the accident at Three Mile Island. "The Day After Tomorrow" , on the other hand, had no apparent impact on attitudes toward climate change. It is anyone's guess whether last night's airing of "Oil Storm" on Fox's FX Channel raised the public's awareness of the risks of another oil shock. As simple entertainment, it left much to be desired.

The premise of "Oil Storm" was that two big events combine to cut off both a major source of US oil imports, as well as much of the key US production in the Gulf of Mexico. You can argue about how realistic it would be to have two such "worst case scenarios" happen together, but a quick glance over the last couple of years should remind us that we have seen any number of events that have had a major impact on the oil markets, including a paralyzing strike in Venezuela's oil industry, two wars in Iraq, protests by indigenous groups in Nigeria, and several hurricanes. The two key events in the film also complement each other nicely: while hurricane damage in the Gulf Coast would have an immediate impact on both prices and physical supply, a disruption in the Middle East, while ratcheting up prices instantly, would take a month to hit inventories, because of the long shipping times involved.

So how well did Fox handle this scenario? Ignoring the mawkish human interest vignettes, the producers seem to have done just enough homework on the industry to put together a superficially plausible storyline, while missing many key factors that would make reality rather different from what was portrayed. Viewed in the best light, the program served as a reminder of the degree to which we depend--both individually and as a nation--on key chunks of infrastructure that we will never hear about until something bad happens to them. However, there were so many defects of logic that this larger message may have gotten lost:

First, while the loss of the Louisiana Offshore Oil Port (LOOP) and the Louisiana offshore production, including the outer continental shelf, would indeed take close to 2 million barrels per day out of US oil supply until repairs could be effected, the Strategic Petroleum Reserve (SPR) is capable of pumping twice as much oil into the system for up to six months, during which time global supplies would rebalance. Furthermore, in a complex global system, rebalancing is the key word; it's not just a question of asking Saudi Arabia to produce more oil. At a high enough price, oil destined for other markets would flow here, and demand everywhere would slow down.

It's also easy to forget that even without the SPR, the loss of four million barrels per day would still leave us with as much oil, from domestic production and imports from Canada, Mexico, West Africa, and elsewhere, as the country consumed in the 1980s. There's an enormous difference between no oil and not enough oil, and "Oil Storm" never seemed sure which situation it was dealing with. And the idea that the whole country could be waiting on tenterhooks for a couple of cargoes of oil is simply ridiculous.

Then there's the relationship between oil prices and gasoline prices suggested in the show. At times I had the impression that the script writers didn't know how to divide by 42. For example, at the highest crude oil price attained in the film, $153/barrel, an equivalent gasoline price, including refining margin, taxes and dealer margin would be around $4.75/gallon. From that point, you can either let prices go up by more than this in order to slow demand enough to balance supply, or you control prices and get long lines, as was the case in the 1970s. "Oil Storm" gave us $7 gasoline and long lines, and I just didn't buy it.

The real question, of course, is not whether I bought into it, but rather the reaction of the TV audience. Was the balance between docu- and -drama good enough to grab and hold someone who wasn't expecting to write a blog about it on Monday? I'll be watching the ratings and waiting to see if this made-for-TV movie creates any ripples.